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California’s Blockchain Bill Confirms That Government Is Always Several Steps Behind Innovation

California’s Blockchain Bill Confirms That Government Is Always Several Steps Behind Innovation

It’s called AB 2658, and it’s a California bill proposing to establish a “working group” to thoroughly analyze the uses, risks, benefits, and legal implications of blockchain technology. In short, it aims to study an agile and perpetually evolving technological phenomenon that essentially moves faster than any committee-driven model to understand or “theoretically capture” it.

Authored by Majority Leader and bureaucrat extraordinaire Ian Calderon of Whittier, the bill is headed to Governor Jerry Brown’s desk and expected to be signed by September 30. Once passed, the working group is expected to submit its findings to the state Legislature by the following year, July 2020.

Can we assume that by the time their “study” has been concluded and submitted, that the technological nature, functions, and applications of the blockchain will have already moved on to the point of “changing the game” about “uses, risks, benefits and legal implications”?

On the positive side, such a study may be necessary considering that the state government may plan to adopt blockchain use for its operations; something that can only add perhaps a bit more efficiency and capacity (short of actual innovation) to state government.

But as far as creating an environment for entrepreneurs and innovators to develop and adopt the “nearly limitless” blockchain so that California can remain a “global leader in fostering innovation and new technology,” as Calderon states, it may be helpful to remind him that government often does not “foster” innovation but rather stifles it, as disruptors are always ahead of the slow elephant that is state bureaucracy. Instead, fostering innovation is best handled by allowing private industry to do its work.

Innovative processes are agile and bottom-up, comprised of rapid multiple iterations that lead to both success and (lots of) failure. But its cyclical production speed is what makes it work–it produces a lot of prototypes cheaply and efficiently to define and “refine” what might be considered an “ideal” product.

Innovation is rarely fostered by slow, careful, overly-analytical “group-think” committees. And to think that government can create a more suitable environment for blockchain disruptors who have real “skin in the game”–those who take on risks (of failure, costs, etc.), and do the work “hands-on”–by providing a careful “study” that lags the technology; such thinking misses the point by more than a 100%.

The working group, per the bill, should consist of members from various industries (tech and non-tech), members with a background in law, and people representing privacy and consumer organizations. The group should also include the State Chief Information Officer, the Director of Finance, and one member each representing the Senate and the Assembly. Good luck in getting these members to 1) thoroughly understand how blockchain works, 2) monitor its rapid progress, and 3) agree with one another promptly that produces something of validity, and that isn’t left in the dust by the technology the group proposes to study.

The report also proposes to include suggestions for modifications to the definition of blockchain and for certain code sections that may be affected by blockchain adoptions and deployment:

“(1) The uses of blockchain in state government and California-based businesses; (2) The risks, including privacy risks, associated with the use of blockchain by state government and California-based businesses; (3) The benefits associated with the use of blockchain by state government and California-based businesses; (4) The legal implications associated with the use of blockchain by state government and California-based businesses […]”

State adoption of blockchain marks an encouraging sign of progress on a government level. Encouraging entrepreneurs within the state by creating an environment conducive to blockchain development is also a positive and positively impactful gesture. But the state’s assumption that government is needed to foster innovation shows us that the state’s notions on innovation, disruption, and creative disruption are a**-backwards. Most often, change begins with the private sector and ends with (or is absorbed by) the state, not the other way around.